Debt Control Is Key Before and During Retirement

Findings from the third quarter Wells Fargo/Gallup Investor
and Retirement Optimism Index survey show debt reduction remains a top goal for
Americans, both before and after retirement.

The survey finds fully three-quarters of investors have some
type of debt, including 83% of non-retired investors and 54% of retired
investors. While two-thirds report a concerted effort to cut debt loads, an
even larger majority (89%) has taken at least a small action to reduce debt.

Among investors who carry debt, nearly half (46%) say the amount
of debt they are carrying has decreased in the past two years, according to
Wells Fargo and Gallup. Another 31% say it has increased and 23% say their debt
load has stayed the same. Among all investors, debts most often include either
a mortgage (53%), a credit card balance that carries over from month to month
(37%), a car loan (35%), a student loan (23%) or another outstanding debt or
loan (12%).

In one encouraging sign, seven in 10 investors who say they
made an effort to trim debt feel they have been successful in reducing their
debt as much as they had hoped. The progress is encouraging, researchers note,
especially given that 62% say they intend to make additional major efforts in
the future to reduce their debt.

Many of those surveyed (56%) implied their ultimate goal for
reducing debt today was achieving a debt-free retirement. Another 36% say this
is important but not critical, while 8% say it is “not too important” or “not
at all important.” A slight majority (55%) believe it is “very possible” for
them to be debt-free in retirement, while 37% say it is somewhat possible and
8% not possible.

Interestingly, Wells Fargo and Gallup find investors with
more saved in retirement accounts ($100,000 plus) are likelier to see debt “as
a powerful tool” for building wealth, at 20%, versus 6% of those with less saved.

NEXT: Social Security
worries abound

According to Wells Fargo and Gallup, non-retired investors
are generally doubtful they will receive their full benefit from Social
Security when they retire. A little more than half (52%) say it is not too or
not at all likely the system will be able to pay them their full benefit. And while
another 31% say it is somewhat likely, just 15% believe it is very likely.

As a result, most non-retirees are not counting on their
Social Security benefit to be a major source of income when they retire.
Fifty-eight percent say it will be a minor income source and 14% not a source
at all. Just 26% expect Social Security to be a major income source for them. This contrasts
sharply with current retirees, according to the optimism index, with 42% of current
retirees describing their Social Security benefit as a major income source and
37% as a minor source.

Looking to the wider markets, 44% of investors say they
would make major adjustments to their investment strategy if interest rates rise. The most common action investors
anticipate making is buying more stocks (30%), while just 8% say they would
reduce their stock holdings. About a quarter (23%) say they would buy bonds or
other fixed income investments, whereas 10% say they would sell these types of
instruments.

“In a complex market environment, interest rates changes are
yet another factor that can be unsettling to investors,” explains Bob Vorlop, head of products and
advice at Wells Fargo Advisors. “One of the most important roles a financial
adviser can play is to design portfolios that can meet investors’ objectives
under a variety of circumstances.”

Advisers can be a tremendous source of comfort and confidence
to investors, he adds.

“Investors found a variety of ways to benefit from the low
interest rate environment, but this may be a good time for them to revisit
their investment strategies and make sure they’re properly
diversified to benefit in a rising rate environment as well,” Vorlop says.

NEXT: Overall
optimism is down

Even before the steep slide in stocks in late August, the Wells
Fargo/Gallup Investor and Retirement Optimism Index showed investor confidence
slipping 12 points to +58, from its seven-year high of +70 during the previous quarter.
The drop in optimism was attributed to non-retirees, whose index score was down
17 points to +53 versus +70 in May. According to Wells Fargo and Gallup, this
was driven more by mounting concerns about the economy—particularly the stock
market and inflation—rather than their ability to reach personal financial
goals. Retiree optimism held steady at +70, similar to +67 in May.

“While investors couldn’t have predicted the timing of the market
volatility, the wide market swings in late August underscored the importance of
having a diversified portfolio that helps to shield them from the
rollercoaster rides that can occur in the stock market from time to time,” Vorlop
concludes.

Looking ahead, investors
predict the issues most likely to put a drag on performance were taxes (46%),
unemployment (43%), and the threat of cyberattacks (42%). Only 20% of investors
in August believed China’s economic slowdown was “hurting the investment
climate a lot,” while 42% said it was hurting it a little.

Once again the quarterly survey underscores the important
role that a written financial plan can play in helping investors meet
their financial goals. Just over a third of non-retired investors (36%) say
they have a written financial plan, Wells Fargo and Gallup find, and of these
45% are highly confident that their plan is adequately designed to ensure they
reach their financial goals. Slightly more retired investors have a written
plan (45%), and a somewhat higher share (53%) is highly confident it is
adequately designed to achieve their financial goals.